At Tax Freedom Day we are often reminded of the importance of fighting for tax reform to reduce taxes for everyone. But there’s another idea that’s not as sexy but just as important: reducing the tax debt in your family. One recent report released by the Tax Foundation, a nonpartisan think tank, shows that the top 400 taxpayers in America paid less than 20% of total federal income taxes in 2012. What this means is that for the first time in over 100 years, one family owns more wealth than the bottom 40% of Americans. The wealthy are the new upper class. And that’s not just rhetoric: in many cases, this is a literal statement.
Let’s look at just one of those family members: David Rockefeller, head of the Rockefeller Brothers Fund. By most estimates, this family currently has wealth of $2.7 billion. Their personal wealth would place them comfortably in the top 1% of income earners. You can read about this family’s personal net worth in the Wealth-X report on the global 1%. Despite having about $3.8 million in outstanding tax debt, David Rockefeller paid less than $6.7 million in taxes.
That is a more than 5-to-1 tax savings compared to the rest of America. And with that money the Rockefeller Brothers Fund has put another $30 million into education to support public schools and college scholarships. While this is one example of many, it shows how easy it is for the wealthy to pay less taxes than many of the rest of us. And it could be worse. A family can have $1 million in tax debt, but still have $8 million in assets.
A few weeks ago, the Rockefeller Brothers Fund was in the news because of the controversy surrounding the charity-consulting work performed by the Rockefellers’ daughters. The work was deemed illegal by the IRS, according to an indictment recently unsealed in a Manhattan federal court. It is the first federal case involving foundation tax law since the financial services crash of 2008. A grand jury indictment said the two Rockefellers’ foundations had paid $26 million to a for-profit financial-services firm that was created by two of the daughters. The IRS has filed a civil case.
The two daughters, Abby and Casey, deny the allegations and say the money was for consulting fees on foundation business. You may be wondering why I spent so much time on this topic. This is a family with such massive wealth. One that has worked hard and saved thousands and thousands of dollars. It was wrong, plain and simple, to pay a consultant as much as this family did. And the fact that they still have not been charged? It’s simply not fair.
As the report says, a lot of the tax breaks are in the name of charities. The people running those charities or foundations would never dream of going into the financial services industry. So why, when the IRS comes around and questions where the money goes, do these charities go and try to make it look like they have spent money on good charitable causes? This whole thing just makes no sense.
I’ve always wondered why the Rockefellers are so rich and successful. They sure don’t seem like the smartest people out there. In this case, their smartness and their greed, came back to bite them in the butt. This is a great example of why you should NEVER trust your business to someone that you are not completely comfortable with. And the only way to avoid that is by NEVER having any type of business that you don’t have 100% confidence in.
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